Canada’s leading corporate and investment banking group RBC has teamed up with FX Options specialist to offer trading on Digital Vega’s multi-dealer FX Options platform Medusa. The Royal Bank of Canada is the first Canadian bank to offer trade execution in FX Options on Digital Vega’s online platform.
The move was sparked by change in clearing of OTC products post Dodd Frank rulings. FX Options have been growing in popularity especially amongst retail traders as spot FX has taken difficult hits in leverage and trade conditions (FIFO).
FX Options give clients an opportunity to speculate on rice movements and pay only the premium. Retail providers like Saxobank and Alpari UK have introduced FX Options on online trading platforms. FX Options are offered by major derivatives exchanges including CME. The Chicago based exchange offers a wide selection of currencies including major and minors. Daily trade volume was around $50 billion in 2008.
On exchange currency products have been popular in India, the BRIC nation introduced currency futures in 2008 and in 2011 offered exchange-traded options. Volume in the first month was around $440 million.
FX Options are traded in large ticket sizes and by institutional clients, in addition to electronic trading the voice broking market is popular and accounts for around 20% in UK and more than 50% in Asia.
FX Options act in the same was as conventional financial options on indices or equites, an FX Option gives the buyer the right, but not the obligation, to buy or sell a specific quantity of one foreign currency in exchange for another at a fixed exercise price. They can be either American or European in style. The buyer pays a premium to the option seller.
Forexmagnates will be writing a detailed article on brokers implementing FX Options, available in the Q2 2012 quarterly report.